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Eliezer_Yudkowsky comments on Review: Selfish Reasons to Have More Kids - Less Wrong
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If mortgage interest is tax-deductible but rent isn't, then you have to pay higher rent in order for it to be converted into an interest payment that would come out of pretax income. I think this is how Michael Vassar said the market got so messed up, though I don't know if I'm correctly attributing it to him, or if the notion is unique to him (I expect not).
There are two puzzling observations here, though:
In booming real estate markets, rent may in fact be cheaper than the interest on the equivalent house price even considering the tax break. I suppose this is because people count on appreciation, but we know how good that assumption is.
The lack of mortgage interest tax breaks in Canada doesn't make people's attitudes towards renting vs. buying any different than in the U.S. The only observable effect, as far as I know, is that Canadians on average struggle to pay off their mortgages more quickly.
This is a common notion among econobloggers.
I'm not sure I understand what "conversion" you're talking about, but it sounds like you might be saying that the landlord has no mortgage interest deduction, so they need to receive a larger rent payment to break even, than it would cost the renter to own the same property. If that's not your point, then disregard the rest of this comment.
To the landlord the mortgage interest is a business expense and can typically be deducted. So there's (ceteris paribus) no difference between the net cost of the mortgage to the landlord, and to a homeowner.
What I'm saying is that you can either pay $2000 of rent using post-tax income or $2000 of mortgage using pretax income. This might work out to the difference between a $3300 mortgage payment (pretax income) or a $2000 rent payment (after the $3300 has been taxed at an e.g. 39% marginal rate by state and feds).
OK, that's what I thought you meant, thanks for clarifying.